Sedona Corporation (fka SDNA)

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Legal Wrangling Continues In Case Vs. Ex-Refco Brokers
Wednesday August 9th, 2006 / 0h39


By Judith Burns Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- A case charging former Refco Securities brokers with fraud and market manipulation should proceed because regulators have provided sufficient detail on the charges and evidence of a cover-up, Securities and Exchange Commission lawyers said in a brief filed Friday.
According to the SEC, former Refco brokers Jacob Spinner and Mottes Drillman intentionally beat down prices of shares in Sedona Corp. (SDNA) in 2001 on behalf of client Andreas Badian.
Sedona, a King of Prussia, Pa., software company, had borrowed from Amro International, a Badian client, in a deal that gave Amro the right to convert the debt to stock but barred it from selling Sedona short. (Short selling is the practice of selling borrowed shares in hopes of profiting if the stock price falls.)
Despite the no-short selling agreement, the SEC said Badian had the brokers undertake massive short sales of Sedona stock while the deal was in place, driving down its price by 40%.
Spinner and Drillman are seeking to dismiss the case, filed in federal court in Manhattan, on grounds that the SEC has not provided specific details of wrongdoing on their part.
Marc Ross, a New York attorney who represents Spinner and Drillman, said they are victims of an "over reaching" SEC that is more interested in "media sensation" than justice.
Although the SEC has thousands of hours of tape recordings of the brokers on the job, Ross said it extracted only a few inconclusive out-of-context "sound bytes."
Spinner, for instance, was recorded as saying where illegal acts are called for, "I'm your guy." But his lawyer said the remark was a joke made to Spinner's father-in-law, with Spinner doing his best to sound like Marlon Brando in "The Godfather." All the recording proves, according to Spinner's lawyer: "The guy does a terrible Marlon Brando imitation."
In a motion to dismiss the case, filed in June, Ross said the brokers shouldn't be held responsible for sales they executed on behalf of Badian. Ross also argues the SEC never alleged that the brokers knew of Amro's no-short sale agreement with Sedona, and says the SEC didn't provide facts to support its claim that the brokers knew Badian intended to manipulate Sedona's stock price.
Ross disputes the SEC's allegations that the former Refco brokers sought to cover up massive short sales by marking order tickets as "long" sales and by using "wash" sales and matched buy orders. Ross said the brokers didn't write the order tickets and that at the time, there was no requirement for sell orders to be marked as long or short.
SEC lawyers say the case should go forward, arguing that Spinner and Drillman "played a substantial role in executing manipulative trades" and deliberately mismarked order tickets, or directed their 22-year-old assistant to do the same. After three weeks of short sales, the SEC said Sedona's stock price was slashed from an average of $1.43 to 75-cents a share.
The fact that the brokers were executing trades on behalf of a customer doesn't preclude them from being charged as "primary violators" of federal securities laws, according to the Aug. 4, brief by SEC lawyers. A ruling on Spinner and Drillman's motion to dismiss the case is expected later this summer.
The brokers, who also worked at Pond Securities, aren't the first to be charged in connection with allegedly illegal short selling of Sedona shares.
Thomas Badian, a brother of Andreas Badian, and his firm, Rhino Advisors Inc., agreed to a $1 million settlement with the SEC in March 2003 without admitting or denying the agency's fraud charges. A criminal complaint unsealed in December 2003 charging the two brothers with conspiracy to commit securities fraud was later dismissed against Andreas Badian, but is still pending against Thomas Badian, now a fugitive.
Refco Inc. (RFXCQ), parent of the securities unit, filed for bankruptcy last fall after revealing a $430 million debt in a subsidiary controlled by former chief executive Phillip Bennett. Refco, which went public last August, saw its shares fall from more than $30 to less than $1.
Sedona shares closed at 18 cents Tuesday.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; [e-mail]


Wednesday August 9th, 2006 / 0h39